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The real estate market in Saudi Arabia softened during the second quarter of 2019, but the sector can expect a major reprieve from the continued government spending on giga-projects, as the kingdom is actively pursuing investments beyond the oil and gas sector.
With conditions remaining soft across most sectors of the real estate market in the first half of 2019, the hospitality and entertainment industries witnessed a number of major development announcements.
These included the unveiling of Al Qiddiya’s master plan in Riyadh, aiming to cement the city’s position as the ‘Capital of Entertainment, Sports, and the Arts’, as well as the launch of the Kingdom’s first arthouse ‘Cinema El Housh’ in Jeddah, apart from religious tourism, according to real estate and investment management firm JLL’s 2019 mid-year review report.
The cost Al Qiddiya project's infrastructure alone would reach up to 30 billion riyals ($8 bln) and the project would eventually be worth tens of billions of riyals, Reuters reported citing local media.
In the office sector, rental rates continued to register declines, while vacancy increased on an annual basis, amid limited corporate activity.
According to the report, average Grade A rents in Riyadh office market dropped 4 percent in Q2 to reach SAR 1,360 ($362.6) per sq m per annum, while average Grade B rents dropped 1 percent to register SAR 1,030 per sq per annum.
Similarly, residential sale prices and rental rates dropped year-on-year.
In Riyadh residential market, average rents in Q2 decreased at a slower rate than average sale prices. Rents across apartments and villas declined 1 percent on an annual and quarterly basis. Meanwhile, sale prices dropped 5 percent year-on-year in both apartments and villas.
“These projects are expected to generate large opportunities for job creation and private sector participation in the economy, particularly in the hospitality sector, while also enhancing the quality of life of the local population. Looking ahead, this is expected to reflect positively on the number of tourists arriving in the Kingdom, in turn, boosting hotel performance levels,” said Dana Salbak, Associate, JLL MENA.
According to a Reuters report, Saudi Arabia is seeking $20 billion worth of investments through 2035 for planned tourism landmark, Al-Ula Heritage Projects, and will hold a global investor roadshow before the end of the year.
“As these projects trigger other large-scale real estate development activity, and the government actively drives non-oil economic growth, in line with Vision 2030, we can expect more positive impact on the overall market in the long run,” Salbak added.
The report highlights a positive outlook for office market in the long term. In the medium-to-long term, corporate demand is expected to pick up as business conditions improve, owing to various new projects such as Riyadh’s 176.7 km metro and Dammam’s King Salman Energy Park (SPARK), JLL said.
Meanwhile, the Saudi government’s housing initiatives are expected to buoy the residential market.
These housing initiatives have had a positive effect, across cities, on access to home financing. As the government works towards raising home ownership rates to 70 percent by 2030, this will mean more demand for residential units, and upward pressure on rents and prices, in the long run, the report said.
Despite challenging market conditions, various government initiatives aimed at boosting Saudi home ownership and government focus on the real estate sector as part of the economic diversification process is encouraging, according to property consultant Knight Frank’s Saudi Arabia Residential Market Review 2019.
Raya Majdalani, Research Manager at Knight Frank said: “The residential market remains under pressure as the rising affordability challenge and the lack of suitable supply for middle- and lower-tier buyers continue to weigh on the sector.
(Reporting by Seban Scaria, editing by Mily Chakrabarty)
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